I see some overheated media reports blaming Google for failing to deliver its promise: "...to reinvent mobile hardware with Motorola's new phones, and directly compete with Apple by owning both mobile hardware and software."

Just as much as I want to keep manufacturing jobs in America, I don't fault Google for this decision. The new Google-Lenovo deal shows a significant recognition by Google that the company has little to gain by hanging on to the smartphone hardware business.

Added values are in peripherals Now, contrast this decision against Google's $3.2 billion purchase of Nest.

Nest's Learning Thermostat and Protect smoke and carbon monoxide alarm are both designed to connect to one receiver: the Nest app on a smartphone.

The value here isn't the smartphone itself, but in peripherals -- the software and hardware that run Nest. The smartphone, a mere messenger for these functions, is fast becoming a commodity.

To be sure, I'm not forecasting the eclipse of the smartphone. Smartphones will still be ubiquitous for years to come, their value intact. But the smartphone's key function will be a modem, attached to a myriad of connected devices and technologies.

In short, the world is about to flip.

Gone is the conventional wisdom of cramming more and more bells and whistles into smartphones so that smartphones can morph into something else. Emerging is a new world where the existence of smartphones is a given. Added value, where new competition will unfold, is not in smartphones themselves, but in "peripherals" (some call it the Internet of Things) that will leverage the smartphone's connectivity.

Now, let's add these two events (dumping Motorola and buying Nest) to last Sunday's patent truce between Google and Samsung.

That move will "short circuit" the drawn-out legal wrangling we see today, as Francis Sideco, senior director of consumer electronics and communications technologies at IHS, told EE Times. The "eventual reality" perceived by both companies is that nobody wins hands down in any litigation. While winning some individual cases and losing some, the net loss for both sides is in time and energy, and in the vast sums squandered on lawyers, Sidesco explained.

But more to the point, the significance of the Google/Samsung cross-licensing agreement, as Ron Epstein, principal at Epicenter IP Group, put it earlier this week, is this: "The [smartphone] platform battle -- initiated by patent wars -- is coming to an end."

Clearly, both Google and Samsung are seeing the value of doing business together by trading patents.

The flip side of this détente, though, is the maturing of the smartphone business. If we were still in the early days of smartphone innovation, this wouldn't have happened.

The end of an era The end of an era for smartphones is a difficult prospect to face. After all, the smartphone market has been the engine of the electronics industry in the last several years. And yet, think about this: For a few years, other than the screen size of a handset, the industry hasn't been able to significantly improve or differentiate the smartphones on the market today.

The state of the smartphone industry today bears a striking resemblance to the moment in 2005 when the novelty of notebook computers began wearing off and IBM sold its PC business to Lenovo.

The difference now is that the PC business then was predominantly owned by Taiwanese (and some Japanese) companies. The smartphone business for the next decade will be dominated by (mainland) Chinese OEMs including Lenovo, Huawei, ZTE, and many other names still unfamiliar in the United States yet.

As many of my engineer friends in China would tell me, Lenovo has a stellar reputation for technology, quality, talent and discipline. (In contrast, from what I gather about ZTE, not so much.) Lenovo is also ambitious. Last year, it even assembled a team of engineers to start developing its own application processors for smartphones -- in order to differentiate their products.

Nobody better take lightly what Lenovo can do.

In an environment that will be marked by a declined smartphone innovation, Apple's next move -- virtually the first major initiative in the post-Steve Jobs era -- will be huge.

Nice article - and I agree with the general conclusion regarding the "commoditization" of smartphones. I think the innovation over the past few years emphasized the "smart" over the "phone" by focusing on cool apps, hardware to better process the same, download speeds for data etc. while compromising features like voice quality, optimal microphone placement etc. Hopefully, once the dust settles from this phase of disruptive innovation and product leadership, back to main-street, companies will re-focus on the "phone" part a bit more and we can all look forward to more robust call quality - something that will make Mr. Alexander Graham Bell happy.

Of course the problem with the smart phone as dumb terminal is that it has to be connected. While the cost of being connected is reasonable (and going down) and the bandwidth is definitely going up, the reality is that one can't always be connected. I'm in my third house around the outskirts of Denver. This is the first one in 14 years where cell service has been available, and no, none of them were "out in the wilderness" each was settled enough to be service by paved roads within a mile and have some sort of homeowners association. Two of the three even had cable TV accessible. And cell service was available just down the road or by climbing a tree.

As I travel the roads of Colorado, there are a lot of places I can't use Google Maps because my carrier (no carrier, for that matter) covers it. Even now, my office, in a walk out basement has marginal cell coverage. If it wasn't for my Wi-Fi, I'd be in pain.

For the urban dweller, internet of things controlled by a smart phone may work just fine, but for "the rest of us", even vacation road travelers, we depend on what is actually stored n the phone and what can actually run on the phone. I don't see that reality changing real soon now. The money (for the carriers) is where the population density is high, and they reach beyond that only when not doing so causes enough pain to enough of their customers.

Some of you may not know what Dumb Terminals are since they are a relic of the early days of computing, when IBM room-sized main-frame computers, which sold for about $30 million, were all the rage. The idea at the time was to have all the heavy computing done on a powerful stand-alone computer and just have visual interfaces, i.e. Dumb Terminals, to show the results to the end user.

They don't call them main-frames any more. They have a new name for them; they call them, "The Cloud." So the "new???" idea is to have all the heaving lifting done on the Cloud and just download the results to a "Visual Interface" i.e. a Smartphone.

Even though we will call them Smartphones, comparatively, they won't be very smart for a number of reasons; size, weight, battery life, storage capacity, and other limitations. Most of the real computing will be done remotely, on the Cloud, and the Smartphone will just display the results.

So even though the Smartphone will appear to be smart to the end user, in essence it will morph into nothing more than a Dumb Terminal. And thus, the cycle of technology will have reached its conclusion. Stated another way, what goes around comes around.

About 5 years ago I got a smartphone with a full compliment of inertial sensors & connectivity options. Fast forward to today and the ONLY differences I see between the latest models is faster processors & different screen sizes/resolution.

Since I'd rather watch a sports event or movie on a 55" monitor, video resolution on a small screen is a non-issue. I can't understand why people sacrifice quality for convenience, but I need only look at the history of MP3's to understand how it's happening.

A faster processor would be nice ... but it doesn't help me read my email any faster.

So with the above in mind, I'd say that the smartphone peaked a number of years ago. It's definately a commodity device with no further means of expanding. But what it does have is a quick, accessable interface and using it as a dumb terminal for other devices is pretty much assured. Other products can be easily developed using the smartphone as a display and data input device. This is a huge bonus to developers as now they can focus on their product and not necessarily the user interface. Expect the hype to change from what the smartphone is, to what it can control.

Google has a huge advantage: selling and marketing is far cheaper for it than any other manufacturer.Usually the margins retailers take on consumer electronics are maybe 30%-50% fo product costs. If google sells online only(which it already did in chromecast and in india for moto g) it can cut it to a few percents probably.

That's a huge unfair price advantage.

Also this might be part of moves by google to shift manufacturers to sell online only, since google makes it money online. Maybe.

Like Bitcoin, it's hard to say what a pile of patents are worth. IMO it's just the price of admission if you want to play Smart Phones with the big boys. You can get a pile of patents the old-fashioned way by writing lots and lots of patents and having the USPTO rubber-stamp them. Or you can just buy a bunch of them.

When Nortel went bankrupt their pile of approx 6000 patents sold for US$4.5B. Hard to say what they're worth in principle, seeing as how all those patents didn't keep Nortel out of bankrupcy. Google bid for those patents, starting at US$900M and ending at US$3.14159B. As you can tell from the second number, Google was being gamesome, or maybe ratcheting up the bidding so that the consortium (incl Apple and Microsoft) would waste a lot of money on the patents, weakening their ability to compete on products. At least with MM, Google bought a going concern, and the patents in question are probably more germane to smart phones and other mobile computers. Also, MM had 17,000 patents with another 7500 pending.

Besides, if you have a huge cajón full of money you might as well use it to protect yourself when you see known patent agressors spend US$4.5B -- they might want to engage in mischief to get some ROI. As Chief Brody said in Jaws (1975) "You're gonna need a bigger boat".

Since Google paid $12B for Motorola Mobility and sold it for ~$2 that's the loss.

http://money.cnn.com/2012/05/22/technology/google-motorola/

Yes, its clear Google likely just wanted the patents. Google management has given it a value of the difference in sale price, ~ $10B. Is it truly worth $10B? How was such a valuation made? How is any valuation made? Time will tell and it takes big cajones to spend so much, the same cajones that gave Nest a valuation 10x of their current earnings.

I agree totally that the smartphone is/will be morphing into more of a commodity computing platform, working with any number of peripherals. If there's ANYTHING convincing about this "PC in decline" mantra, that would be it. Powerful multicore, 64-bit smartphones could become the brain of PCs, as long as the peripherals connected to them are adequate.

But the best part of this point of view is that finally someone at EE Times has achnowledged that just maybe, "high tech" did not start and end with the smartphone. Thanks, Junko. Watch the incredulous reactions!

Like anything else, over time, the stand-alone smartphone will be just another transitional product.